USD/CAD extended the downfall from last week, sketching a series of lower highs and lows as the Federal Reserve aims to achieve inflation of two Percent overtime. The pair is poised to test its January low of 1.2957 even as the Relative Strength Index is near the oversold territory.
Apart from the Fed Chairman Jerome Powell’s recent speech, fresh remarks from Governor Lael Brainard also points to the continuation of current monetary policy in the FOMC rate decision on September 16. Even though the Fed discusses an outcome-based approach rather than calendar-based forward guidance, flexible average inflation targeting means the inflation will be allowed to persist above two Percent after periods in which it stayed below the Fed target. The governor considers the current scenario as a case-in-point suitable for the average inflation targeting policy.
FAIT, according to Brainard, is better suited for the highly uncertain and dynamic context of monetary policy decision making. He further added that the US economy might continue to face coronavirus-related headwinds for some time and monetary policy is better to pivot from stabilization to accommodation.
The FOMC might not scale back the current emergency measures anytime soon. USD/CAD might continue to fall on dollar weakness, and along with that, the Bank of Canada is likely to pursue its current monetary policy direction in the next meeting on September 9. The governor of Canada’s central bank Tiff Macklem while addressing the recent Fed symposium said: “really important for monetary policy to provide support through the whole long recovery.”
The retail investors have been net long in the USD/CAD since mid-May and the coming days will tell us whether the crowding behaviour in the US dollar will continue.
